Extreme Networks is anticipating its fiscal Q3 earnings to come in at millions of dollars lower than expected, possibly obstructing the company's plans to grow its networking business and leading some customers and analysts to worry about the company's future.
Extreme, which also said its chief revenue officer is no longer with the firm, now expects to report a loss of 7 cents to 9 cents per share for its fiscal third quarter, which ended March 31, according to the company's summary of unaudited results released last week. That's a sharp departure from its earlier guidance, which predicted financial results that ranged from a loss of 3 cents per share to a profit of 2 cents. At the same time, Extreme downgraded its revenue forecast, saying it would post sales of between $118 million to $120 million for the quarter, down from its previous range of $130 million to $140 million.
Chuck Berger, Extreme's president and CEO, said in the guidance that Extreme faced several challenges that affected revenue last quarter. These roadblocks included the increasing strength of the dollar which caused customers to delay or cancel purchases -- especially within Extreme's target markets of higher education, stadiums and venues. Extreme didn't respond to requests for comment.
Even as revenues fell, however, Berger said Extreme's operating expenses came in below the low end of guidance due to tighter expense management that will continue going forward. Extreme also plans to reduce outstanding debt by $20.6 million, projecting ending cash balances to be between $74 million to $76 million, he said.
Extreme's financial performance raises concerns from one IT administrator, an Enterasys user who became an Extreme customer following the vendor's $180 million acquisition of Enterasys in 2013. The administrator, who requested anonymity, said his manufacturing company is "watching very closely" the direction Berger will take the company. The IT administrator said that while Extreme's financials don't look very positive, the vendor has been able to keep its expenses down.
"I would imagine [Berger] is under a great deal of pressure to get revenue in line as they missed the top line by about $10 million," the administrator said.
Extreme has kept the legacy Enterasys product lines intact, but that's most likely due to product line integration delays, the administrator said. That will soon change, he said, as legacy Enterasys products begin to adopt the Extreme Operating System. "[This] makes us the most nervous," the administrator said. His company recently placed a large order for a technology refresh with Extreme.
Another former Enterasys customer, Oral Roberts University (ORU) in Tulsa, Okla., said it isn't troubled about the forecasted financials, according to CIO Michael Mathews. Mathews said that ORU has worked with other technology vendors that were losing millions of dollars a year; usually as a result of market consolidation.
But Mathews said he doesn't believe market consolidation is affecting Extreme just yet. "Our concern regarding a weak quarter is pretty negligible," he said. "We plan on doing business with Extreme for years to come."
Extreme's stock has continued to fall since the unaudited results were released late last week. The company also noted that it is seeking a replacement for Chief Revenue Officer Jeff White, but it issued no further comment. Some industry experts believe White's abrupt departure could be another sign of weakness for the vendor.
One weak quarter doesn't indicate that Extreme is in financial trouble. In addition to the macro-economic issues that Extreme is facing, the vendor has spent the last 18 months integrating its Enterasys acquisition, said IDC analyst Rohit Mehra. "In some ways, Extreme went through its own consolidation," he said.
Extreme has had some recent customer wins, most notably becoming the official Wi-Fi provider for the NFL.
"I would like to see Extreme return to growth and I'll be watching for it, both in their campus portfolio of wired and wireless products, as well as within the data center and their evolving SDN vision, which we need to see more of," Mehra said.
Final Q3 results and guidance for the fourth fiscal quarter will be released the first week of May, Extreme said.
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